Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

Sales	$	480,000
Beginning merchandise inventory	$	32,000
Purchases	$	320,000
Ending merchandise inventory	$	16,000
Fixed selling expense	$	?
Fixed administrative expense	$	19,200
Variable selling expense	$	24,000
Variable administrative expense	$	?
Contribution margin	$	96,000
Net operating income	$	28,800

Required:

1. Prepare a contribution format income statement.

2. Prepare a traditional format income statement.

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

Answer 1

Requirement 1

Contribution margin income statement
Sales revenue		$ 480,000
Variable costs
Variable cost of goods sold	$ 336,000
Variable selling expense	$ 24,000
Variable administrative expense	$ 24,000
Total Variable costs		$ 384,000
Contribution margin		$ 96,000
Fixed costs
Fixed selling expense	$ 48,000
Fixed administrative expense	$ 19,200
Total fixed expenses		$ 67,200
Net operating income		$ 28,800

working

Contribution margin income statement
	Per unit	Total
Sales	$ 480	$ 480,000
Variable costs	$ 384	$ 384,000
Contribution margin	$ 96	$ 96,000
Fixed cost		$ 67,200
Net operating income		$ 28,800

Requirement 2

Traditional Income Statement
Sales revenue		$   4,80,000.00
Less: Cost of Goods sold		$   3,36,000.00
Gross Profit		$   1,44,000.00
Selling and Administrative Expense
Total Selling Expenses	$       72,000.00
Total Administrative expenses	$       43,200.00
Total Selling and Administrative Expense		$   1,15,200.00
Net income		$       28,800.00

Requirement 3

Selling price per unit= $ 480

Selling price =$480000/1000 units

Requirement 4

Variable cost per unit= $384

Variable cost per unit = $384000/1000 Units

Requirement 5

Contribution margin per unit= $96

$96000/1000 units

Requirement 6

Answer--------Contribution format